Frontier’s best option could be to make more network investments, says Wells Fargo

Frontier may be putting more emphasis on cutting costs after making its third-largest acquisition in the past decade of Verizon’s California, Texas and Florida (CTF) assets, but financial analysts and equity holders said the telco should consider ramping up network build-out spending.

The service provider told investors during its fourth-quarter earnings call that it has forecast 2017 capex to be in the range of $1 billion to $1.25 billion.

This is down from the $1.25 billion to $1.4 billion range it projected for 2017.

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Perley McBride, CFO of Frontier, told investors during its fourth-quarter earnings call that the lower capex numbers reflect that the new company has more assets and is holding off on new IPTV rollouts to look at other options like OTT video.

“This is a decline from 2016, as our larger size has enabled greater efficiencies, including better pricing in procuring goods and services,” McBride said. “We also have more than adequate inventory on consumer devices and we’re scaling back our video build as we evaluate the opportunities created by the evolution of technology.”

However, Jennifer Fritzsche, senior analyst for telecommunications services at Wells Fargo, said in a research note that “if you ask equity holders, we think the answer may be to invest more in the network.”

“It is hard to fix a problem just by cutting costs when your competition (cable) is only pressing its foot heavier on the capex and fiber pedal,” Fritzsche said.

That’s not to say Frontier has not been making any new investments in its network.

Over the course of 2016, Frontier enabled over 1 million copper-only households with 50 Mbps and higher speeds. The telco also added over 190,000 CAF-II households and 500,000 households in adjacent areas.

Frontier also made progress in the business broadband arena, equipping 200,000 new copper broadband builds in its CTF business.

At the same time, Wells Fargo said, Frontier’s issues with integrating the CTF properties, which caused significant broadband subscriber losses, could be driving investors to lump other rural ILECs like Windstream into the same bucket.

“Sitting in our seat, the struggle we have is that all the other RLECs seem to be being painted with the same brush and have a severe case of “Frontier-itus”, even though some are doing very good things with the network (i.e.: fiber pushout, integrating acquisitions etc.),” Fritzsche said.

Fritzsche added that “this RLEC bunch may have come from the same parents but they are all very different children.”